De Beers Expects to Dig Angola Gem Mine to Recoup Expense

De Beers, the world’s biggest
diamond producer, said it’s confident of finding a gem deposit
in Angola that will allow it to more than recoup the $250
million it has spent on exploration.

The company, owned by London-based Anglo American Plc (AAL), has
found diamonds in a 3,000 square-kilometer (1,158 square-mile)
concession near Lucapa in the Lunda North province, Pedro Lago
de Carvalho, De Beers’s business manager in the country, said in
a Jan. 16 interview in Luanda, the capital. The site is the only
remaining concession out of five De Beers has explored in the
country since 2005, he said.

De Beers pulled out of Angola in 2001 after losing the
right to sell more than $800 million of gems. It went through
three arbitration rounds with Endiama EP, the state diamond
company, before returning in 2005. Angola, which had the fifth-
largest gem output by value in 2011, lies behind only Russia and
Canada in unexplored potential, Lago de Carvalho said.

“We are confident we can find something that will allow us
to recover all our investment,” he said. “The contract is
clear, there is no debate.”

The results of evaluation studies of three ore bodies known
as kimberlites at Mulepe, about 800 kilometers (500 miles) east
of Luanda, are expected in about two months, and will be
followed by meetings with Endiama to decide how to proceed, Lago
de Carvalho said.

Diamond producers have struggled to find new, large
deposits to replace aging assets. Production at many of the
biggest operations is falling as supplies of more accessible
gems near the surface are depleted.

Economic Viability

Typically only 1 percent of kimberlites, which are eroded
remnants of ancient volcanoes that sometimes formed diamonds
under intense heat and pressure, hold gems.

A reserve’s economic viability would have to be determined
and a mining contract would still need to be negotiated, Lago de
Carvalho said.

“We don’t have a deposit per se, it’s still in the
exploration phase,” he said. “There is no formal time line.”

The country is a “high priority” for De Beers, which has
allocated a $30 million annual prospecting budget that’s
unlikely to diminish soon, he said.

Angola, Africa’s biggest oil producer after Nigeria, sold
8.33 million carats valued at $1.16 billion in 2011, according
to the Kimberley Process, an international treaty with 54
participants representing 80 countries to prevent the sale of
gems mined in war zones. The top producers by value that year
were Botswana, Russia, Canada and South Africa.

Concession Shareholding

De Beers has a 49 percent share in the Mulepe concession,
with Endiama holding the rest, according to an exploration deal
signed before a new mining law enacted in late 2011.

The legislation lowered the minimum stake the government
has in future projects to 10 percent and reduced taxes to 25
percent from 35 percent.

Mines Minister Francisco Queiroz, who was appointed
following elections in August and who drafted the new code, said
in November that Sodiam, the state-run gem seller, will hand its
market-regulating duties to a new, independent institution.
Queiroz is also promoting diversification into gold and iron-ore
mining.

While this fits into Anglo American’s options to pursue
other minerals, the company, which raised its stake in De Beers
to 85 percent last year after buying the Oppenheimer family’s 40
percent for $5.1 billion, hasn’t yet taken a decision on whether
to do so, Lago de Carvalho said.

The 27 million carats De Beers planned to produce last year
represents a 43 percent decline from its pre-crisis output in
2008. The company slashed output by 50 percent in 2009 amid the
global financial crisis.

The simplified legal framework, which assures sales, and
the partnership with Endiama will help counter a slowdown in
demand for gems as debt crisis in Europe and slower growth in
Asia and the U.S., the largest consumer of diamonds, Lago de
Carvalho said.